Shadows picked up by satellites suggest Saudi Arabia underreported its oil stores last year

Satellite images of two major oil refineries in Saudi Arabia suggest reserves may have been higher than reported.

Satellite technology allows the levels of oil in tanks to be estimated according to the shadows cast by their floating roofs.

Saudi Arabia reported falling oil reserves last year and agreed as part of OPEC to extend production cuts into 2018.

LONDON — Satellite imagery of two of Saudi Arabia's largest oil refineries suggests the kingdom may have underreported its oil stores in the first half of 2017.

Satellite images gathered by the tech startup Bird.i suggest the level of crude oil held in two major Saudi refineries, Ras Tanura and Yanbu, increased last year from January to June. The kingdom's official figures show supplies as having declined amid a commitment to reduce supply in the face of low prices.

Bird.i collects and analyzes satellite, drone, and airborne images from numerous sources, some of which are captured in monochrome and some in full color. The technology allows the fullness of oil tanks to be estimated according to the shadows cast by tanks' floating roofs: More shadow suggests the roof and oil stores are low. Factors such as the time the photos were taken, the position of the sun, and the satellite's position are also considered.

Images taken of the Ras Tanura refinery, which with a capacity of 550,000 barrels a day is Saudi Arabia's largest, suggest stocks were relatively low in January compared with in May, when the shadows cast were much shorter — indicating a higher supply.

Images of Yanbu terminal, a major refinery on the Red Sea with a capacity of 225,000 barrels a day, suggest stocks in November 2016 were relatively low compared with those in May of last year, when the tanks look to be "almost full," according to Corentin Guillo, the founder and CEO of Bird.i.

A third — and the most recent — image of Yanbu, taken in December, shows more shadow, suggesting oil supplies fell again in the second half of the year.

Saudi Arabia also reported falling stores throughout 2017. In official data submitted to the Joint Organisations Data Initiative, the kingdom reported oil stocks had declined by 5.4 million barrels last year from January to June and were on a downward trajectory from March to September.

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"The direction of the oil price is particularly difficult to predict given the combination of global demand, technological change and politics which feed into its valuation," said Laith Khalaf, a senior analyst at Hargreaves Lansdown.

"It would be pretty destabilising for the oil price, and for OPEC, if Saudi Arabia was shown to be saying one thing and doing another," he said.

But Khalaf cautioned that aboveground storage tanks were not the full picture. Satellite images are "far from conclusive evidence," he said, since reserves are also held overseas and in underground tanks.

Saudi Arabia's economy is heavily dependent on oil, a problem — in the face of a finite supply and low oil prices — the kingdom is trying to solve. Its Vision 2030 project seeks to diversify the economy and boost the state's coffers.

"In order to comply with the normal listing rules, Saudi Aramco would have to reveal precise information about its current reserves and how they have been calculated," said Mihir Kapadia, the CEO of Sun Global Investments.

"However, it is not yet clear whether the share sale would include ownership of the ground reserves, and therefore we may be uncertain about the level of transparency from the company," he said.

"The [official government] figure of 266 billion barrels [in reserves] matters because it estimates the proven value of the commodity, especially as it could appreciate after peak oil," Kapadia said.

"One of the key aspects for the [Aramco's] valuation would be the reserve total," he said.

Saudi Arabia's oil ministry did not immediately respond to a request for comment.